The 10% you are not supposed to pay yet

A contractor's last invoice often asks for everything still owing, including the 10 percent that has been sitting on each draw. Homeowners pay it because the kitchen looks finished and they want the crew gone. In Ontario that 10 percent is the basic holdback under the Construction Act, and it is not yours to hand over on the day the counters land.

This is planning information, not legal advice. Lien deadlines and the form of a notice are statute and regulation. If a claim shows up, talk to a lawyer before you move the money.

What the Act actually makes you keep

On a contract where a lien can arise, each payer keeps a holdback equal to 10 percent of the price of the services or materials as they are supplied. That is section 22 of the Construction Act. It applies to the owner paying the contractor, and again down the chain. It is calculated on what was supplied, not on a round number someone likes.

You withhold it from each progress draw. A $20,000 invoice is a $18,000 payment and $2,000 parked. By the end of a $80,000 kitchen the parked amount is $8,000. That pile exists so subcontractors and suppliers can still be paid if the contractor does not pay them.

Holdback is not contingency

Contingency is your money for surprises: rot, a panel, a permit fee nobody named. Holdback is the contractor's money, kept back by law, until the people under them have had their chance to lien.

Spend the holdback on a better faucet and you have spent someone else's security. Then a drywaller who was not paid can still lien the house, and you may pay that invoice on top of the faucet. Paying the 10 percent early does not make the lien right disappear.

When it can actually be released

The basic holdback stays until liens that could be claimed against it have expired, or have been satisfied or discharged. In Ontario the time to preserve a lien is 60 days. The clock is not "60 days after I feel done." If a certificate of substantial performance is published, the 60 days run from that publication. If there is no certificate, they run from completion of the contract, or from the last supply of services or materials, depending on which date the Act uses for that contract.

Substantial performance has a published test in the Act, including a dollar formula, and the certificate is published in a construction trade paper. A text message that says the job is done is not that publication. Ask the contractor who is publishing it, and the date, before you count days.

Prompt payment is a different clock. After a proper invoice, an owner generally has 28 days to pay the amount due. If you are refusing part of it, the Act wants a notice of non-payment, in the prescribed form, within 14 days, with reasons. The holdback is not that disputed amount. You still keep the 10 percent even when you pay the rest on time.

What to write into the contract

• Each draw states the gross, the 10 percent held back, and the running holdback balance
• Final payment of the holdback is tied to the lien period, not to "upon completion"
• Who publishes the certificate of substantial performance, and where
• A separate contingency that is not funded by releasing holdback early

British Columbia, Alberta, and the other provinces have their own lien statutes. Some also use 10 percent. The release dates are not Ontario's dates. Do not paste this schedule onto a Vancouver contract.

If the quote has no holdback line at all, ask before you sign. A contractor who has never heard of it is a risk. A contractor who wants it waived in the contract is asking you to take the lien with no cash left to deal with it.